Many UK businesses, especially SMEs, are feeling the pressure. Rising energy bills and new tax hikes are eating into profits, making it harder for many to stay afloat. On top of that, weak consumer demand and growing uncertainty around government policy are adding to the strain. As costs rise across the board, business owners are forced to make tough decisions to keep going.
In this blog, we’ll explain what’s causing these challenges, how they’re affecting British businesses, and what steps you can take to prepare for what’s ahead in the economic forecast.
Every day costs are climbing
A recent business survey reveals that the cost of running a business in the UK is rising fast. Companies are dealing with rising staff wages, higher National Insurance payments, more taxes, and increased energy bills. On top of that, the value of the pound has dropped, making imported goods more expensive. As a result, businesses are having to charge more for their products and services. This, in turn, drives up inflation and makes life more expensive for everyone.
Although the UK’s official inflation rate dropped slightly to 2.5% in December, it’s still above the Bank of England’s 2% target. And compared to the peak of 11.1% in October 2022, things are improving, but businesses aren’t feeling much relief yet.
Is the UK headed for stagflation?
Inflation is coming down; however, the economy isn’t growing. According to government figures, the UK hasn’t seen much economic progress in recent months. Experts are now warning about stagflation, when prices keep rising, but growth and job opportunities stay flat, or even go backwards.
The report shows that companies are cutting jobs faster than they have since the 2009 financial crisis (apart from during COVID). With low growth and high costs, the economic forecast is uncertain, and businesses are understandably worried.
Business confidence is dropping
Many business owners are feeling less hopeful about the future. A British Chamber of Commerce survey shows that confidence has fallen. One of the main reasons is worry over government policies, rising taxes, and ongoing economic instability. In fact, many business leaders expect profits to go down in the next 12 months. Their top priorities now are reducing costs and managing cash flow.
This growing uncertainty is also causing many businesses to delay or cancel planned investments. Expansion projects, hiring plans, and technology upgrades are being put on hold as companies shift to a more cautious approach. Instead of growth, the focus has shifted to survival, with leaders watching market trends closely and preparing for a potentially prolonged period of financial pressure.
Energy prices are still a major concern
Even though energy prices have come down a little from their peak, they’re still a big issue. In a recent Make UK Executive survey, over half of UK businesses said rising energy bills are their number one concern for 2025.
Electricity prices in the UK are higher than in many other countries. That’s partly because we rely more on gas to generate electricity, and gas prices have surged since 2021. This was caused by the world economy recovering after COVID and the ongoing war in Ukraine.
Some industries, like paper manufacturing, petrochemicals, and metal production, have been hit especially hard. Their output has dropped by a third since 2021 and is now at its lowest level in decades.
Turning a challenge into an opportunity
High energy costs are forcing businesses to think differently. Many are looking into smarter, more efficient ways to operate, including better insulation, upgraded equipment, and smart automation to reduce waste.
In the coming years, the government is expected to tighten rules on how energy-efficient business buildings must be. Companies that start making changes now will save money in the long run and stay ahead of future regulations.
Businesses that act early may also gain a competitive edge. By showcasing their commitment to sustainability, they can attract environmentally conscious customers, improve their brand image, and even qualify for green certifications or incentives. These steps not only cut costs but also open up new market opportunities.
Could rising costs lead to business closures?
All of these pressures – energy costs, higher taxes, falling demand, and shaky confidence – are making it harder for businesses to survive. Without a clear plan to manage these issues, some companies may face insolvency.
That’s why it’s so important to act early. For some, restructuring or cutting costs may be enough. For others, closing the business and starting afresh may be the most practical and affordable choice. No matter what, speaking to professionals about your options is key to making the right decision in today’s uncertain economic forecast.
Final thoughts
There’s no denying that times are tough for UK businesses. However, by being proactive, whether through energy-saving upgrades, smarter spending, or exploring your financial options, you can give your business the best chance of staying afloat. Staying agile and regularly reviewing your strategy can also help you adapt to shifting market conditions.
If you’ve already done all you can, and closure feels like the only choice, it’s better to take action now rather than wait until things get worse. Getting expert advice early can save you time, money, and stress. Preparation and clarity are your best allies. Even in difficult moments, knowing your options can empower you to move forward with confidence.
We’re here to help
If your business is struggling under the weight of rising costs and economic uncertainty, you don’t have to face it alone. If you’re considering liquidation, our qualified Insolvency Practitioners, authorised by the Institute of Chartered Accountants in England and Wales, are here to help. We offer free, impartial advice to ensure you choose the best insolvency option for your individual needs, helping you close your business in the most cost-effective way.
You can reach us easily via the contact form below, live chat, email at mail@Simpleliquidation.co.uk, or by calling 0800 246 5895. We’re ready to support you whenever you need.
